The Brazilian economy only grew 0.1 percent in 2014, barely keeping the country out of a recession. This marks the worst economic news for Brazil since 2009.
Brazil may have technically averted a recession, but other economists maintain that the nation already entered a recession last year, and other analysts say the country will enter a recession in 2015. Regardless of the differing views, many agree that Brazil's current trajectory is unsustainable. The nation's central bank forecasts a 0.5 percent decline this year.
Investor Confidence Waning
Brazil has a host of problems, but the primary factor is an investment dip that has fallen 4.4 percent beginning in 2013, and the industrial sector contracted 1.2 percent. Many foreign investors believe the government cannot attract and foster growth. A kickback scandal involving state-owned enterprise Petrobras certainly hasn't garnered investor confidence in the economy. The Brazilian real cascaded 18 percent compared to the dollar starting in 2015, and the loss of credibility added to runaway inflation and high interest rates.
Brazil Faces Deeper Economic Problems
Brazil has suffered from a slide in worldwide commodities prices, and China, a major trading partner of the South American nation, has receded demand for Brazilian goods. Brazil is a primary exporter of soybeans, corn, iron ore and crude. With high inflation and a stagnating economy, Brazilians are stuck between a rock and a hard place, and they are struggling more than other developing markets when dealing with the world recession. The central bank also predicts a 7.9 percent rise in inflation for 2015.
Consumption, which is a driving force of the Brazilian economy, expanded by only 0.9 percent in 2014. A combination of rising prices and slow wage growth exacerbates the situation, making it harder for Brazil to inject life into the economy. The slight growth is actually better than what economists expected. For example, there was 0.7 percent growth in the service sector and 0.4 percent in agriculture.
Growing Dissatisfaction with Brazilian Government
The bad economic news is an additional problem that President Dilma Rousseff has to tackle while not ignoring the social and political issues. Rousseff's poll numbers have suffered since 2009, stemming from not only a weak economy but also other factors, such as corruption and police violence. Over a million people protested in March, calling for her impeachment. Investors are watching the friction between the leftist Rousseff and the more conservative Finance Minister Joaquim Levy. Levy reportedly said privately that the president does not always act the most effectively when dealing with policy matters. Her perceived ineffectiveness is another factor that makes foreign investors nervous. Moreover, a divided government prevents the country from addressing social, political and economic issues going forward.